Dairy prices holding up

A Fonterra tanker delivering milk. Picture / File

International dairy prices appear to have weathered the storm, which in recent weeks has hit commodities including oil, precious metals and food.

The average price for a basket of products in Fonterra's online auction yesterday fell 1.1 per cent, after relatively flat results in the previous two auctions.

Oil and other commodities came under pressure earlier this month as markets took stock of issues, including Osama bin Laden's death, the impact on consumers of higher costs and monetary policy.

BNZ economist Doug Steel said a 1 per cent decline in an auction was "neither here nor there, really".

"If anything, it's actually mildly positive relative to what could have happened."

Oil prices were down more than 8 per cent since the previous auction two weeks ago, with wheat, corn and sugar down 2-3 per cent, he said. "Milk prices relative to those over that period are holding up okay."

A bounce back in the US dollar of more than 3 per cent since the previous auction had been a headwind to dairy prices. "The bigger picture is that prices have been somewhat stable over the last few auctions, perhaps remarkably so given the volatility we have seen in other commodity markets."

The auction result included a drop for a fat-based product and a rise for whole milk powder, he said.

"I think the general message is that international dairy prices are stabilising around a fairly elevated level compared to history. That's certainly good news for our producers and certainly good news given that the Northern Hemisphere production season is ramping up."

There was usually a dip about this time of year and prices, so far, seemed to be holding up quite well, Steel said.

Demand for dairy products remained strong, particularly in emerging markets.

The ANZ Commodity Price Index for dairy products dropped 2.6 per cent in April, having in March hit the highest level since May 2008.